Sive Morten
Special Consultant to the FPA
- Messages
- 18,685
Fundamentals
(Reuters) - The dollar reversed course to drop sharply against a basket of currencies on Friday, after an ABC News report that Michael Flynn, former national security adviser to President Donald Trump, is prepared to testify that Trump directed him to make contact with Russians when he was a presidential candidate.
Reuters has not verified the ABC News report, which cited a Flynn confidant.
Flynn was charged with lying to the FBI, according to court documents released on Friday, in an escalation of an investigation into alleged ties to Russia that has cast a cloud over Trump’s administration.
The dollar index, which tracks the greenback against six major currencies, was down 0.44 percent to 92.641. The index rose as high as 93.248, earlier in the session.
Proposed Tax Cuts Keep US Business and Consumer Sentiment High in October
by Fathom Consulting
Our US Economic Sentiment Indicator (US ESI) slipped from 6.0% to 5.8% in October, but official real GDP growth is unlikely to be this strong in Q4.
The rate of economic growth implied by our US ESI, which distills information from numerous consumer and business surveys, has exceeded real GDP growth in each of the last four quarters. This is likely to continue for a fifth quarter in 2017 Q4, with real GDP growth likely to be closer to 4.0% (annualized). The prospect of large corporate tax cuts, as well as the global economic upswing, are keeping businesses confident. Consumer confidence has also been buoyed by the prospect of income tax cuts and a strong labor market.
COT Report
On CFTC data we have two important details. First is, EUR still keeps extreme net long position with high levels of traders involving in process, as open interest also stands rather high. As we said many times before - this is preparation for collapse. And as higher open interest is as stronger collapse will be.
Second issue - interesting data in last three weeks. Take a look that last week net long position has increased while open interest dropped - definitely some shorts were closed, but this week we see opposite action - shorts are back... Now we need to get some tendency of shorts growing here and simultaneous appearing of bearish reversal pattern. In fact we already are watching for DRPO "Sell" on weekly chart.
Today, guys, our report mostly is dedicated to EUR, but we would like to take a look at it through the prism of Dollar Index (DXY) by two reasons. First - we mostly have discussed EUR intraday situation just yesterday, second - some moments DXY shows better.
Technicals
Today, guys, we mostly will be interested in two last month of action. Our long term view and detailed analysis of Dollar Index you could find in previous research.
Major conclusion that we've made last time was about upside retracement. It should be deep, and probably will be triggered by Fed hawkish policy in 2018.
On monthly chart we have two technical issues that suggest reasonable bounce up within few months. They are - DiNapoli bullish "Stretch" pattern, as price has reached K-support at monthly OS. But it is mostly worked out already, as DOSC has reached "0" level.
Second one is bearish reversal swing which has more fundamental background. As upside momentum is still here, deep retracement could be triggered.
But this is only on first stage. Result of this bounce could lead to appearing of huge H&S pattern on monthly chart in 2018. And here is major tricky moment stands. From one side, we have rather hawkish Fed policy and good stats, that, theoretically should lead to bullish sentiment on the market and upside breakout of widening triangle here, on monthly chart. But from the other side, we see traders reaction that have closed longs, which means that now they are more believe in H&S and bearish reversal here.
Here is CFTC Dollar index chart - commercials (hedgers) have closed big shorts positions in May. These positions usually stand against anticipated price action. It means that they do not believe much in dollar appreciation in nearest time. Simultaneously large amount of speculative long were closed (blue bars). Overall possession in Dollar has decreased.
Since positions have been closed in May - speculative (non-commercial, blue bars), short position slightly increased which indicates short-term bearish sentiment on the market.
Thus, It seems that 101 level will be clue to solution - if DXY will start to break through it - H&S pattern will be vanished and market sentiment could start to change. This is most important level for long-term traders.
But for us, major conclusion is expectation of upside action in nearest few months here.
After this introduction, let's focus on our particular subject - last two monthly candles. In fact, guys, we've got bearish engulfing here. And it seems, before final upside reversal will happen, we should get minor downside action back to previous lows around 90.65-91.0 area. Some deep retracement after first bounce up from K-support and trend line.
Weekly
On weekly chart this leads us the same major pattern as on EUR - DRPO "Buy". To be honest, guys, on EUR potential DRPO pattern looks purely. Here, we have more DRPO LAL (Look-alike) rather than pure DRPO.
This is because we use absolute high as starting point of the thrust, while real thrust has started slightly lower, around 100.30 area. If we will use this point - then DXY already has tested 3/8 resistance that should not happen when you're dealing with DRPO. That's why we call this scenario as LAL.
EUR, in turn, shows a bit different action, although shape is the same. There price keeps pure DRPO setup.
As on DXY as on EUR DRPO has not been confirmed yet. We need just two details to be completed still - some deeper downside action first and upside reversal and close above 3x3 DMA second. This is here, on DXY. On EUR there should be mirror action, as we have DRPO "Sell" there.
As and if DRPO "Buy" will be confirmed and start to work - action somewhere to 98-100 should happen to keep harmony of potential H&S pattern here.
Daily
Now we're coming to most interesting thing here. So, we've estimated above that DXY should show deeper action, but now major question is - how this will happen.
As usual we could get different scenarios, and key to understanding will depend on price action inside big red circle. Major question here is - whether deep upside retracement will happen or not.
On DXY chart you can see reason, why we've talked about deep retracement on EUR before upside continuation. Dollar index moves a bit faster and it almost has completed AB-CD target that we're yet waiting on EUR. Besides, while EUR already has broken all Fib levels, here - DXY stands at major 5/8 Fib support and daily OS.
First upside reaction has taken the shape of morning star pattern, which hints on upside continuation and some kind of AB-CD action on intraday charts. Because morning star is the same type of pattern as engulfing.
Besides, monthly engulfing also suggests some retracement back inside it. This action happens not always but as a rule it does.
So, our first scenario suggests another leg up somewhere to 93.60-93.80 area before final downside reversal will happen. Picture of this setup you will see below, on intraday charts.
Second scenario - direct downside action. This also could happen by monthly bearish engulfing. In this case, price just will continue with existed AB-CD right to an area of 1.618 target, or, to 91.75 area if butterfly "Buy" will be formed in red circle.
But we treat this scenario as less probable. It is too many technical issues stand in favor of upside bounce
4-hour
Here is setup that we see as most probable in current technical circumstances. If we our ab-cd action up will happen, we could get perfect pattern to short right at the top of H&S pattern - "222" Sell. Target in this case will stand around 91.20 - large H&S AB=CD target.
It is interesting that it pips-to-pips coincides with 1.618 daily AB-CD of the first scenario...
There is only uncertainty - length of cd leg, whether it will be equal to ab, or slightly greater as it is shown on the chart.
Scalp traders potentially could watch for "222' Buy on hourly chart as well, which also could take a shape of double bottom. But be aware of its mutation to butterfly as daily AB-CD target has not been hit slightly, for a few pips. And 4-hour upside action could start by butterfly...
Conclusion:
Dollar now brings a riddle about long term perspective, as some contradiction exists between massive longs closing and positive perspective of Fed fund rate. As Dollar index is a core for many other currencies and assets this riddle will spread across the board. And this is the riddle that we have to resolve. Right now we provide just one possible explanation, but it doesn't mean that its unique.
Now we suggest that all these factors point on upside action as deep retracement but not as upside trend continuation.
In shorter term perspective, we mostly will focus on downside reversal and patterns that will stand around it. As we come closer to Fed December meeting - downside action should be completed within 1-2 weeks. Then DRPO as on EUR as on DXY should be triggered (or fail )
The technical portion of Sive's analysis owes a great deal to Joe DiNapoli's methods, and uses a number of Joe's proprietary indicators. Please note that Sive's analysis is his own view of the market and is not endorsed by Joe DiNapoli or any related companies.
(Reuters) - The dollar reversed course to drop sharply against a basket of currencies on Friday, after an ABC News report that Michael Flynn, former national security adviser to President Donald Trump, is prepared to testify that Trump directed him to make contact with Russians when he was a presidential candidate.
Reuters has not verified the ABC News report, which cited a Flynn confidant.
Flynn was charged with lying to the FBI, according to court documents released on Friday, in an escalation of an investigation into alleged ties to Russia that has cast a cloud over Trump’s administration.
The dollar index, which tracks the greenback against six major currencies, was down 0.44 percent to 92.641. The index rose as high as 93.248, earlier in the session.
Proposed Tax Cuts Keep US Business and Consumer Sentiment High in October
by Fathom Consulting
Our US Economic Sentiment Indicator (US ESI) slipped from 6.0% to 5.8% in October, but official real GDP growth is unlikely to be this strong in Q4.
The rate of economic growth implied by our US ESI, which distills information from numerous consumer and business surveys, has exceeded real GDP growth in each of the last four quarters. This is likely to continue for a fifth quarter in 2017 Q4, with real GDP growth likely to be closer to 4.0% (annualized). The prospect of large corporate tax cuts, as well as the global economic upswing, are keeping businesses confident. Consumer confidence has also been buoyed by the prospect of income tax cuts and a strong labor market.
COT Report
On CFTC data we have two important details. First is, EUR still keeps extreme net long position with high levels of traders involving in process, as open interest also stands rather high. As we said many times before - this is preparation for collapse. And as higher open interest is as stronger collapse will be.
Second issue - interesting data in last three weeks. Take a look that last week net long position has increased while open interest dropped - definitely some shorts were closed, but this week we see opposite action - shorts are back... Now we need to get some tendency of shorts growing here and simultaneous appearing of bearish reversal pattern. In fact we already are watching for DRPO "Sell" on weekly chart.
Today, guys, our report mostly is dedicated to EUR, but we would like to take a look at it through the prism of Dollar Index (DXY) by two reasons. First - we mostly have discussed EUR intraday situation just yesterday, second - some moments DXY shows better.
Technicals
Today, guys, we mostly will be interested in two last month of action. Our long term view and detailed analysis of Dollar Index you could find in previous research.
Major conclusion that we've made last time was about upside retracement. It should be deep, and probably will be triggered by Fed hawkish policy in 2018.
On monthly chart we have two technical issues that suggest reasonable bounce up within few months. They are - DiNapoli bullish "Stretch" pattern, as price has reached K-support at monthly OS. But it is mostly worked out already, as DOSC has reached "0" level.
Second one is bearish reversal swing which has more fundamental background. As upside momentum is still here, deep retracement could be triggered.
But this is only on first stage. Result of this bounce could lead to appearing of huge H&S pattern on monthly chart in 2018. And here is major tricky moment stands. From one side, we have rather hawkish Fed policy and good stats, that, theoretically should lead to bullish sentiment on the market and upside breakout of widening triangle here, on monthly chart. But from the other side, we see traders reaction that have closed longs, which means that now they are more believe in H&S and bearish reversal here.
Here is CFTC Dollar index chart - commercials (hedgers) have closed big shorts positions in May. These positions usually stand against anticipated price action. It means that they do not believe much in dollar appreciation in nearest time. Simultaneously large amount of speculative long were closed (blue bars). Overall possession in Dollar has decreased.
Since positions have been closed in May - speculative (non-commercial, blue bars), short position slightly increased which indicates short-term bearish sentiment on the market.
Thus, It seems that 101 level will be clue to solution - if DXY will start to break through it - H&S pattern will be vanished and market sentiment could start to change. This is most important level for long-term traders.
But for us, major conclusion is expectation of upside action in nearest few months here.
After this introduction, let's focus on our particular subject - last two monthly candles. In fact, guys, we've got bearish engulfing here. And it seems, before final upside reversal will happen, we should get minor downside action back to previous lows around 90.65-91.0 area. Some deep retracement after first bounce up from K-support and trend line.
Weekly
On weekly chart this leads us the same major pattern as on EUR - DRPO "Buy". To be honest, guys, on EUR potential DRPO pattern looks purely. Here, we have more DRPO LAL (Look-alike) rather than pure DRPO.
This is because we use absolute high as starting point of the thrust, while real thrust has started slightly lower, around 100.30 area. If we will use this point - then DXY already has tested 3/8 resistance that should not happen when you're dealing with DRPO. That's why we call this scenario as LAL.
EUR, in turn, shows a bit different action, although shape is the same. There price keeps pure DRPO setup.
As on DXY as on EUR DRPO has not been confirmed yet. We need just two details to be completed still - some deeper downside action first and upside reversal and close above 3x3 DMA second. This is here, on DXY. On EUR there should be mirror action, as we have DRPO "Sell" there.
As and if DRPO "Buy" will be confirmed and start to work - action somewhere to 98-100 should happen to keep harmony of potential H&S pattern here.
Daily
Now we're coming to most interesting thing here. So, we've estimated above that DXY should show deeper action, but now major question is - how this will happen.
As usual we could get different scenarios, and key to understanding will depend on price action inside big red circle. Major question here is - whether deep upside retracement will happen or not.
On DXY chart you can see reason, why we've talked about deep retracement on EUR before upside continuation. Dollar index moves a bit faster and it almost has completed AB-CD target that we're yet waiting on EUR. Besides, while EUR already has broken all Fib levels, here - DXY stands at major 5/8 Fib support and daily OS.
First upside reaction has taken the shape of morning star pattern, which hints on upside continuation and some kind of AB-CD action on intraday charts. Because morning star is the same type of pattern as engulfing.
Besides, monthly engulfing also suggests some retracement back inside it. This action happens not always but as a rule it does.
So, our first scenario suggests another leg up somewhere to 93.60-93.80 area before final downside reversal will happen. Picture of this setup you will see below, on intraday charts.
Second scenario - direct downside action. This also could happen by monthly bearish engulfing. In this case, price just will continue with existed AB-CD right to an area of 1.618 target, or, to 91.75 area if butterfly "Buy" will be formed in red circle.
But we treat this scenario as less probable. It is too many technical issues stand in favor of upside bounce
4-hour
Here is setup that we see as most probable in current technical circumstances. If we our ab-cd action up will happen, we could get perfect pattern to short right at the top of H&S pattern - "222" Sell. Target in this case will stand around 91.20 - large H&S AB=CD target.
It is interesting that it pips-to-pips coincides with 1.618 daily AB-CD of the first scenario...
There is only uncertainty - length of cd leg, whether it will be equal to ab, or slightly greater as it is shown on the chart.
Scalp traders potentially could watch for "222' Buy on hourly chart as well, which also could take a shape of double bottom. But be aware of its mutation to butterfly as daily AB-CD target has not been hit slightly, for a few pips. And 4-hour upside action could start by butterfly...
Conclusion:
Dollar now brings a riddle about long term perspective, as some contradiction exists between massive longs closing and positive perspective of Fed fund rate. As Dollar index is a core for many other currencies and assets this riddle will spread across the board. And this is the riddle that we have to resolve. Right now we provide just one possible explanation, but it doesn't mean that its unique.
Now we suggest that all these factors point on upside action as deep retracement but not as upside trend continuation.
In shorter term perspective, we mostly will focus on downside reversal and patterns that will stand around it. As we come closer to Fed December meeting - downside action should be completed within 1-2 weeks. Then DRPO as on EUR as on DXY should be triggered (or fail )
The technical portion of Sive's analysis owes a great deal to Joe DiNapoli's methods, and uses a number of Joe's proprietary indicators. Please note that Sive's analysis is his own view of the market and is not endorsed by Joe DiNapoli or any related companies.